Fundamental analysis of a company's financial statements is a methodology used to analyze the performance of securities, especially stock. Financial data made available in company disclosures generally serve as the basis for the fundamental analysis. For example, these financial data can be extracted from financial statements such as 10-Ks and 10-Qs. These statements are reported based on fiscal years and fiscal quarters. The financial data can be entered into various formulae in order to gauge the performance of a company's underlying business. Fundamental analysis uses data from these financial statements to measure growth, profitability, capital structure and valuation. Examples of fundamental measures are: earnings/sales growth rates; return on equity; debt:equity ratios; PE ratios.
Stock databases containing the financial data are commercially available. The financial data associated with a specific company are usually referenced by a CUSIP number. CUSIP numbers, operated by Standard & Poor's for the American Bankers Association, establish a standardized system for identifying financial instruments, for example, the stock of all registered U.S. and Canadian companies and U.S. government and municipal bonds.
Not until recently were databases that identify all of the stocks of a mutual fund by CUSIP number made commercially available. The CUSIP number allows the financial data in a stock database to be associated with the respective stock in a mutual fund in a fund database.
As with individual securities, analytic methods can be used to measure the overall performance of a mutual fund or other financial portfolio. Traditional analyses of mutual funds which measure performance are based upon price changes and volatility. For example, with respect to the analyses of mutual funds, references to total return represent a fund's gains over a specified period of time. Total return includes both income (in the form of dividends or interest payments) and capital gains or losses (the increase or decrease in the value of a security). Commercial providers of investment information, for example Morningstar, Inc. of Chicago, Ill., calculate total return by taking the change in a fund's net asset value, assuming the reinvestment of all income and capital-gains distributions (on the actual reinvestment date used by the fund) during the period, and then dividing by the initial net asset value.
Unless marked as load-adjusted total returns, conventional commercial analyses of mutual funds do not adjust total return for sales charges or for redemption fees. (e.g., Morningstar Return, Morningstar Risk-Adjusted Ratings, and the load-adjusted returns do incorporate those fees.) Total returns do account for management, administrative, and 12b-1 fees and other costs automatically deducted from fund assets.
These conventional mutual fund analyses do not, however, use methods that resemble the fundamental analysis techniques used in fundamental equity analysis. For example, there are analyses of mutual funds which measure performance based on price changes and volatility measures. There also are analyses which list the top ten (or some other small number) stocks (as measured by market value). Yet other mutual fund analyses measure industry or sector overlap among funds (e.g., the percent in technology in find A versus the percent in technology in fund B). There also are systems which compare the securities in investment portfolios to determine overlap. However, these performance measurements of mutual funds do not accurately reflect the overall or cumulative fundamental analyses of the individual stocks of the portfolio.
Thus, there is a need for a system and method that evaluates the performance of a mutual fund, or other investment portfolio, that uses comparable and complete fundamental data based on the individual stocks within the portfolio. In addition, there is a need for a system and method that evaluates the performance of an investment portfolio using the actual holding of the portfolio, such as are reported on each holdings date of the portfolio.
Buyside Research of Darien, Connecticut has developed a computer program (referred to herein as the “Stock System”) including text and screen displays which graphically compare the performance of one company with its six closest competitors using fundamental financial data. In June of 1999, these graphic comparisons became commercially available over the Multex system, now owned and operated for Reuters, which distributed “Wall Street” research to more than two million users. The present invention combines unique processes of this Stock System with other unique processes in order to aggregate the stock measures for mutual funds or investment portfolios.
Because financial measures and aggregate financial measures of companies are being compared, special processes must be employed to insure that these comparisons are made over similar time periods and are as inclusive as possible. The present invention features unique processes to improve comparability and inclusiveness.